Auto sales fell 3 percent as the impact of the two-month strike against General Motors was felt on Main Street. Many other automakers ended incentive programs that had boosted sales in previous months. The drop in auto sales was the largest since April 1997.
But excluding auto sales, retail sales enjoyed a relatively healthy 0.5 percent gain in July, more evidence that the consumer sector remains robust despite the short strike and the longer-term contagion from weak Asian economies. The underlying pace of retail sales actually showed more strength than in June, when sales excluding autos fell 0.1 percent.
Consumer spending accounts for about two-thirds of the nation's economic activity and retail sales account for about half of consumer spending. The retail sales report is closely watched because it can signal changes in consumer behavior. Spending on durable goods, in particular, is highly dependent on the state of the household's economy.
Economists were expecting retail sales to fall 0.7 percent in July and for sales excluding autos to rise 0.3 percent.
In July, sales of nondurable goods such as clothing and food rose 0.4, while sales of durable goods, such as autos and furniture, fell 1.4 percent.
All of the weakness in durables came from autos, however, as sales at building supply, hardware and garden stores rose 1.1 percent and sales of furniture and home furnishings rose 1.2 percent. Both sectors are heavily dependent on the housing market, which has been at historically high levels.
Among nondurables, most kinds of stores showed modest increases, except restaurants, which declined 0.4 percent. General merchandise store sales rose 0.2 percent while department store sales rose 0.3 percent. Sales at apparel stores rose 0.7 percent, the first increase since April.
Sales at food stores rose 0.3 percent, gas stations sold 0.4 percent more and drug stores reported 0.6 percent higher sales.
By Rex Nutting, Washington bureau chief for CBS MarketWatch